The Governor of the Central Bank of Nigeria (CBN), Olayemi Cardoso, has maintained that the apex bank will keep interest rates high until inflation subsides by implementing orthodox policies.
Cardoso made this known in an interview with the Financial Times. He said that the Monetary Policy Committee (MPC), which he chairs, would do whatever is necessary to tame soaring inflation.
This is as the inflation rate in Nigeria remains high at 33.2 per cent, the highest in three decades, while food inflation is higher still at 40 per cent.
“There is every indication that the MPC would do whatever is necessary. They will continue to do what has to be done to ensure that inflation comes down.
He stated: “Let’s face it: for a long period, the CBN did not embrace orthodox monetary policies. We want to go back to using an orthodox method, and it will take us to where we want to go. The apex bank has been reoriented to focus on price and monetary stability,” Cardoso said.
The monetary policy rate was hiked by 400 and 200 basis points in February and March respectively, which lifted the key lending rate to 24.75 per cent.
Speaking on the fluctuating value of the naira against the US dollar, Cardoso said the situation had now stabilised.“Investors had previously tended to head for the window in response to currency fluctuations. But now, there had been a fundamental shift.
”They’re getting more comfortable with the market,” he stated.
Reacting to Cardoso’s stance, Razia Khan, Chief Economist at Standard Chartered Bank, said: “The return to orthodoxy has been very much endorsed by investors. While Nigeria is not seeking an IMF programme it is implementing the kind of policies that would be endorsed by the IMF.”
Dumebi Oluwole, Senior Economist at data firm Stears, said: “The central bank is on the mark with what needs to be done. But we have to remember that Nigeria’s inflation is a lot more structural. Issues like insecurity are affecting our ability to produce food and that is inducing food inflation.”
Also reacting, David Adonri, Vice Chairman, Highcap Securities, said: “High-interest rate is a bad omen for the economy. It escalates the cost of production and the cost of consumer credit. If supply-side measures are not concomitantly run, it can cause a vicious cycle of galloping inflation. “Consequently, monetary and fiscal policies should work together to start addressing the supply gap that will rein in inflation and reduce the interest rate.”
